Making charities one's RSP beneficiary

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Inquisitive
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Making charities one's RSP beneficiary

Post by Inquisitive »

I am redoing my will and am thinking about removing charities from the new one and instead, making them the sole beneficiaries of my entire RSP.

This sprang from a presentation one of my favourite charities gave. My understanding is that if I make several of my charities the beneficiaries that although my estate will owe tax on the collapsed RSP it will get a tax credit which should be in the vicinity of matching the amount owed.

I know this reduces the size of the estate for probate but that is not the point for me.

I like the idea for its simplicity. If I get annoyed with a charity named in my will or it falls apart - for those of you who know The Land Conservancy of BC, that is a perfect example - I have to call my lawyer and go through the process of adding a codicil. To change a beneficiary in an RSP requires downloading a form, in some cases, and in others writing a letter, revoking the current beneficiary (in my case it is my estate) and naming the new ones, with percentages for each. Pop it in the mail, done.

But! it would be easy for me to blunder into something with an outcome I can't anticipate. I do that so well. :oops: So if anyone has information or thoughts on why this would be stupid - or brilliant - please let me know.

I do realize that once I start drawing down, should I get to that point, the charities will get less and less, but I don't RIF for a few years yet and the amount will, I hope, grow in the interim. Anyhow, the tax on an estate-collapsed RSP will be less as the amount shrinks.

Second question, or should I say Subclause 1a) to the above

To make it even simpler, I also am thinking of making one of the big Foundations the beneficiary, setting up an enduring Legacy fund, so that the charities or areas in which I want to give money are funded from the interest the Foundation earns. And I discovered a FWF favourite, Tom Bradley of Steadyhand, is not only on the Board of Directors of the Vancouver Foundation, he is also the chair of the Investment Committee, which has had remarkable success.

Is there a downside to any of this? Something I am missing? Other ideas?


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Re: Making charities one's RSP beneficiary

Post by Bylo Selhi »

IANAL so consult one for authoritative advice. Here are my thoughts FWIW...

AFAIK you need to make the beneficiary designation in both the RRIF and your will to minimize ambiguity. Otherwise the two different beneficiaries may have to resolve the conflict.

One way to deal with a charity that is defunct at time of death is to anticipate it in your will, e.g. "If charity A no longer does good works in the field of protecting land then I want their bequest to go to charity B. If charity B no longer does good works in the field of protecting land then I want my bequest to go to a charity in BC that does good works in the field of protecting land." The problem with that, of course, is you can't put that sort of verbiage in a RRIF beneficiary designation.

I looked at making a bequest to the local charitable foundation a few years ago but decided to pass. The main reason was that their fund manager charged upwards of 1% to manage the portfolio. IIRC charitable foundations in the west, e.g. Vancouver and Calgary, charge substantially less.

Consider donating as much money as you can while you're still alive. That way you can see the charities doing good things. There's also a significant side benefit in that you get to use the tax credits to reduce the tax you pay in retirement.
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Re: Making charities one's RSP beneficiary

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Inquisitive wrote:for those of you who know The Land Conservancy of BC, that is a perfect example
Off-topic, but it is my opinion this organization, under certain conditions*, undertakes some of the most important work there is to be had. That will be the place I will put some of my money when I have my will overhauled for BC.

I agree with Bylo it is important to designate in both the RSP beneficiary AND one's will to avoid ambiguity and/or a bun fight.

* Land conservation and/or ecological sustainability only. TLC has had issues elsewhere.

Edited to add qualifications
Last edited by AltaRed on 09 Apr 2014 12:58, edited 1 time in total.
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Re: Making charities one's RSP beneficiary

Post by Shine »

Significant changes regarding Wills and Estates became effective as of March 31, 2014. Major complications introduced in order to benefit both the government and the legal profession.

Suggest those living in BC review these changes.

A starting point:

http://www.ag.gov.bc.ca/legislation/sha ... /Part4.pdf

regards
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Re: Making charities one's RSP beneficiary

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Inquisitive wrote:I have to call my lawyer and go through the process of adding a codicil.
No you don't. A codicil can be as simple as a handwritten note attached to the will. If typed, it should be witnessed in conformance with the rules that governed the witnessing of the will. In Ontario, for example, that's two witnesses who are not named as beneficiaries.

I've bequeathed part of my RRSP/RRIF to charities through both my will and beneficiary designation forms filed with the plan administrator. Note that while this double designation potentially prevents confusion after death, it will create confusion if the will and over-the-counter designations are not always kept in synch. Consult your lawyer about putting into the will a generic statement to the effect that the RRSP/RRIF goes to the charity or charities named in a beneficiary designation filed with the plan administrator. That way, it'll be clear to the executor that the registered plan is not part of the kitty and before death you have maximum flexibility in cutting out or writing in a charity. I'll probably do that when my will is next revised.

Note: Those interested in giving money to foreign universities* should be aware that Canada has a list of "prescribed universities." Donations to them generate the same tax credit as donations to a Canadian charity. I've been helping a friend settle his father's estate. The father's will leaves a bequest for use in establishing a scholarship at a university in Israel and names two trustees over there to administer it. Unfortunately, neither he nor apparently his lawyer were aware of the prescribed university provision and the will is silent on choice of school. The Israeli trustees want to administer the fund themselves in conjunction with a school that's not a prescribed university. If my friend can't persuade them otherwise, the estate will lose a huge Canadian tax credit.

* Be aware that many NPR and PBS stations are actually owned by universities. My favorite NPR station is owned by a school that has Canadian prescribed university status. So I've arranged to leave a bequest to the university for use by the radio station. My will conditions the grant on that university still having prescribed university status at the time the bequest is to be paid. The prescribed university provision is also useful if you want to support medical or other research that's not being done in Canada. Odds are that one or more of the major foreign universities on the prescribed list have research programs in that field.
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Re: Making charities one's RSP beneficiary

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brucecohen wrote:Consult your lawyer about putting into the will a generic statement to the effect that the RRSP/RRIF goes to the charity or charities named in a beneficiary designation filed with the plan administrator. That way, it'll be clear to the executor that the registered plan is not part of the kitty and before death you have maximum flexibility in cutting out or writing in a charity.
Good idea! :thumbsup:

My mom had me as the beneficiary of her RRIF but her will named a charity. The will is unclear about whether to give the charity the gross or net proceeds of the RRIF. I'm working through that as we speak. Your suggestion will let me avoid this sort of confusion in our own RRSPs/RRIFs and wills.
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Re: Making charities one's RSP beneficiary

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Bylo Selhi wrote:
brucecohen wrote:Consult your lawyer about putting into the will a generic statement to the effect that the RRSP/RRIF goes to the charity or charities named in a beneficiary designation filed with the plan administrator. That way, it'll be clear to the executor that the registered plan is not part of the kitty and before death you have maximum flexibility in cutting out or writing in a charity.
Good idea! :thumbsup:

My mom had me as the beneficiary of her RRIF but her will named a charity. The will is unclear about whether to give the charity the gross or net proceeds of the RRIF. I'm working through that as we speak. Your suggestion will let me avoid this sort of confusion in our own RRSPs/RRIFs and wills.
IANAL but I suspect that this is one of those situations where the dates of the two instructions will be paramount and whichever is dated later will take precedence since if you are already the beneficiary there may not be any RRIF proceeds to pass by the will and presumably the estate is liable for the taxes . Of course if they were BOTH dated the same---------------? You may have to decide for yourself what your mothers true intentions were!
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Re: Making charities one's RSP beneficiary

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In my case that's not an issue. I'm prepared to donate the gross amount. The issue hinges on whether it's more tax effective for mom's estate to pay out the gross amount or for it to pay out the net and then I donate the balance. The charity will get the same amount but I want to minimize taxes payable.
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Re: Making charities one's RSP beneficiary

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Bylo Selhi wrote:In my case that's not an issue. I'm prepared to donate the gross amount. The issue hinges on whether it's more tax effective for mom's estate to pay out the gross amount or for it to pay out the net and then I donate the balance. The charity will get the same amount but I want to minimize taxes payable.
Sorry
I misunderstood .I am constantly surprised by how what seem to be minor inconsistencies in these situations can have unintended consequences if there is any dispute.
As I understand it there is a limit on how much of your income you can donate and deduct in a given year but no limit if transferred to the charity by will, but then I would assume you had already taken that into consideration prior to asking the question?
I would be interested in learning more from our resident experts with a view to avoiding any pitfalls in my own estate planning.
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Re: Making charities one's RSP beneficiary

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Bylo Selhi wrote:The will is unclear about whether to give the charity the gross or net proceeds of the RRIF.
I don't understand why that's an issue if the charity if Canadian. Donations after the first $200 get credit pegged to the top tax bracket. So ISTM a donation of the gross amount will generate a credit offsetting all tax due. I guess there could still be some tax cost for surtax and OHIP levy, but maybe not that much, relatively speaking.
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Re: Making charities one's RSP beneficiary

Post by Norbert Schlenker »

It seems to me that the charity gets paid the gross amount, the gross amount gets added to income on the deceased's final return, and then as Bruce says a credit is taken on that final return that results in no incremental tax liability (in fact, you're probably leaving something on the table because of progressive marginal rates being charged versus a top marginal rate credit on any donation above $200/year).

In Bylo's case, where the beneficiary designation and the will conflict, you really don't want the will to operate. The effect of that is full inclusion of the RRIF proceeds in the estate, with taxability in the estate (and there's a specific provision in the Act to claw back payout to beneficiaries if there's nothing left in the estate to pay the taxes due on the RRIF), and no charitable credit because Bylo got the money. Now Bylo could then turn around and donate the net proceeds to the same charity, but it can take years to move the funds fully if it's even possible, because of the 75% of income limitation for live taxpayers and the non-refundability of excess donation credits.
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Re: Making charities one's RSP beneficiary

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Norbert Schlenker wrote:It seems to me that the charity gets paid the gross amount, the gross amount gets added to income on the deceased's final return, and then as Bruce says a credit is taken on that final return that results in no incremental tax liability (in fact, you're probably leaving something on the table because of progressive marginal rates being charged versus a top marginal rate credit on any donation above $200/year).

In Bylo's case, where the beneficiary designation and the will conflict, you really don't want the will to operate. The effect of that is full inclusion of the RRIF proceeds in the estate, with taxability in the estate (and there's a specific provision in the Act to claw back payout to beneficiaries if there's nothing left in the estate to pay the taxes due on the RRIF), and no charitable credit because Bylo got the money. Now Bylo could then turn around and donate the net proceeds to the same charity, but it can take years to move the funds fully if it's even possible, because of the 75% of income limitation for live taxpayers and the non-refundability of excess donation credits.
Just occurred to me that, presumably, there would be probate tax to pay if it goes through the estate as well-unless there's some sort of an exemption for registered funds or charitable donations.
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Re: Making charities one's RSP beneficiary

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Norbert Schlenker wrote:the 75% of income limitation for live taxpayers and the non-refundability of excess donation credits.
The amount isn't that large.

Most of her estate was in taxable accounts that held GICs JTWROS with me. We had an agreement that I'd donate those funds to charity after her demise so that I'd get the tax credits she could no longer use. That plus our own donations pretty well take care of our income tax obligations (except for McGuinty's healthcare taxlevy that is.) Note that such an agreement isn't legally enforceable. If you do this with your kids you have to leave them the money and trust them to use it as agreed upon.
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Re: Making charities one's RSP beneficiary

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Bylo Selhi wrote:
Norbert Schlenker wrote:the 75% of income limitation for live taxpayers and the non-refundability of excess donation credits.
The amount isn't that large.

Most of her estate was in taxable accounts that held GICs JTWROS with me. We had an agreement that I'd donate those funds to charity after her demise so that I'd get the tax credits she could no longer use. That plus our own donations pretty well take care of our income tax obligations (except for McGuinty's healthcare taxlevy that is.) Note that such an agreement isn't legally enforceable. If you do this with your kids you have to leave them the money and trust them to use it as agreed upon.
I hope the small size of the RRIF reflects a long life after retirement. Sounds like your mom was quite a lady-my sympathy!
I suspect you've made a good case for keeping the RRIF out of the estate if you can.
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Re: Making charities one's RSP beneficiary

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Thank you for thought-provoking comments. Some I can answer, such as Izzy's query about probate. If the entire RSP (or RIF) names a charity ( or a person, I think) as the beneficiary, it is not subject to probate, and thus also reduces an executor's fee, or so my executor told me.And some set me searching, such as Bylo's
AFAIK you need to make the beneficiary designation in both the RRIF and your will to minimize ambiguity. Otherwise the two different beneficiaries may have to resolve the conflict
.
The charity that gave the (very polished) presentation was The Nature Conservancy of Canada, and I feel confident the presenters would have said so if that was the case. However, I checked NCC's website where they say
The gift is easy to make — you simply change the beneficiary information on the plan document and advise the institution holding your retirement account of the change.
and
You can support multiple beneficiaries, including family members, other significant loved ones and charities such as NCC.If you are married, your spouse will probably be designated as the beneficiary of your RRSP or RRIF. Once you are confident that your family is well provided for, you can make NCC a contingent beneficiary of your plan.
I do give what I am comfortable with now, but I am concerned about needing long-term care as I age. It excites me to give a large chunk of money to,I hope, make something positive happen after my death.

Shine, thank you for pointing out the legislative changes in BC. I have now read two articles on the changes and they look helpful to me, though I can see how it could cause headaches for lawyers. Although I will ask the lawyer to include Bruce's generic statement, if I understand the articles on the changes to the Act correctly, a simple but clear email directive from me to my executor, saying, for example, that I want my entire RSP to go to the beneficiaries named in the Institution's account, should dispel any doubts. According to The Vancouver Sun the new act
allows the court to look to another ‘record, document or writing, or marking on a will’ to help determine the will-maker’s true intentions, and to give effect to them. Accordingly, the court will have the power to order that a written or electronic record stand as a person’s last will.” He said that could include an unsigned or improperly executed will, lawyer’s notes from discussions with the person, a copy of a will stored on the person’s computer or electronic tablet, an email sent from the person setting out his or her testamentary intentions.

Bruce, thank you for clarifying the codicil. I should have known that.

I am not worried that by donating all of my RSP I will not be able to use all of the credit as there will be capital gains to pay ( unless we hit another 2008 :( ) but also because of one more piece of information that I find encouraging. This came from my executor, about changes in the 2014 budget:
Although the changes are still being fleshed out, they apply to gifts made under Will, direct designation gifts of RRSPs, RRIFs, and TFSAs and gifts of the death benefit of life insurance policies. As of 2016, estate donations will no longer be deemed to be made immediately before death. Instead, the donation will occur when the property is transferred to the charity. The charity will issue a fair market value receipt of the donation based on the value at date of transfer, if the transfer occurs within 36 months after death. The donation may be claimed in 3 periods: 1) the taxation year in which the donation was made;
2) an earlier taxation year of the estate; ; and 3) the final two lifetime returns.
I think I have convinced myself it is ok to do this.

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